Now that there is a chance that the sanctions against Iran might be lifted, that state’s oil and gas potential is once again a hot topic. Future increase in the amount of Iranian natural gas shipped to Asia and Europe is on the agenda.
Let’s take a careful look at the realistic potential of Iran’s gas sector, with an eye toward any impending rise in exports of upstream products.
Iran has over 30 trillion cubic meters of proved gas reserves, which makes that country one of the world’s leading gas powerhouses. Depending on the sources of statistics, the gold trophy for gas wealth belongs to either Russia or Iran. Either way, about 15-17% of the global reserves of natural gas lie under Persian soil.
Given such abundance, Tehran should have long been a major player in the gas-market balance of power. But international sanctions have hogtied the state’s oil and gas industry.
Deprived of petrodollars, the Iranians have not had the opportunity to invest financial resources in the development of the gas sector, which has long suffered from a lack of foreign technology.
Nevertheless, the Iranians remained upbeat (they are not a nation prone to apathy or discouragement – this I have noticed firsthand from extensive and close contact with Iranian officials at the Gas Exporting Countries Forum in Qatar), and they began active geological exploration within their country, so as to later astonish the world with the magnitude of their gas resources.
The payoff came quickly. According to FACTS Global Energy Iran has a high success rate of natural gas exploration in terms of wildcat drilling, which is estimated at 79% compared to the world average success rate of 30% to 35%.
A few years ago four sizeable new discoveries were opened for commercial development: Sardare Jangal, Forouz B, Madar, and Khayyam.
The first was discovered offshore in the Caspian Sea. That field is estimated to hold over 1.4 trillion cubic meters of gas. But given the field’s geographical location (approximately 241 km. off the shore of the Caspian Sea), it is possible that Iran will have to share ownership with Azerbaijan. In that case, the fact that the two Caspian states have not adopted any international legislation that would allow the development of cross-border deposits under the Caspian Sea could prove a legal hurdle to the exploitation of Sardare Jangal.
According to the Arab Oil & Gas Journal, Forouz B contains more than 707 billion cubic meters of recoverable gas reserves. Madar holds 495 billion cubic meters of raw materials. Both fields are located offshore in the Persian Gulf, and the first is expected to begin producing by 2017-2018. There are plans to use that gas to generate electricity for export to Iraq, Turkey, Pakistan, and Oman.
Khayyam has 260 billion cubic meters of gas reserves, of which at least 80% can be recovered, as well as 220 million barrels of condensate.
The Kish field’s reserves were originally estimated at 1.4 trillion cubic meters, but those assessments were carefully reevaluated in 2011 and the true holdings fixed at almost two trillion cubic meters of gas. FACTS Global Energy predicts that Kish will be one of the most profitable fields, with potential production of over 113 million cubic meters of gas per day. However, because of prolonged disputes between the companies developing Kish, as well as insufficient infrastructure to fully pursue the project (such as gas pipelines, a gas-processing facility, and a new electrical plant), the first phase is unlikely to start before 2020.
Laban has approximately 186 billion cubic meters of recoverable reserves of gas, plus 62 million barrels of condensate. The first phase of its development (with daily output reaching 21.2 million cubic meters of gas and 11,000 barrels of condensate) should be completed in 2015-2016.
The contract with Malaysia’s SKS Group to develop the Golshan and Ferdowsi fields, respectively containing about 1.1 trillion cubic meters and 311 billion cubic meters of gas, was canceled because the contractor refused to take part in the projects. However, Iranian firms are preparing to begin production on their own by 2020.
Speaking of Iran’s gas resources, it is worth noting that the vast majority of production comes from the South Pars, Nar, Kangan, and Tabnak fields. Approximately 13-14 trillion cubic meters of gas lie below the waters of South Pars, according to even the most conservative estimates.
Statistically, about 80% of Iran’s gross output comes from gas fields, while the remaining 20% consists of associated petroleum gas from oilfields in the provinces of Khuzestan, Ilam, and Kermanshah.
Despite the country’s impressive stockpile of resources, natural-gas production in Iran has not increased as quickly as expected in recent years. This was caused by delays in the development of South Pars, as well as the fact that the gas-transmission network and high-pressure compressor stations were not prepared for a greater influx of natural gas.
However, as noted by Hamid Reza Araqi, the managing director of the National Iranian Gas Company, shortly before the end of the last Iranian year (March 21, 2014 to March 20, 2015), the country was for the first time able to produce more gas than it consumed.
It has been reported that the average level of natural-gas production in the final months of 2014 amounted to 638 million cubic meters per day, or 68 million cubic meters more than in the same period in 2013.
According to BP, based on the numbers from 2013, Iran generated 166.6 billion cubic meters of natural gas, making it the third biggest producer after the US (687.6 billion cubic meters) and Russia (604.8 billion cubic meters). This summer that British company will publish its annual BP Statistical Review of World Energy 2015, which is expected to show an even greater rise in Iranian production, due to a surge in operations at South Pars.
In February 2014, that field entered its 12th phase of development, which quickly boosted gas production in the country. There are plans to have that phase operating at full capacity by 2016-2017, yielding 85 million cubic meters of gas per day and 120,000 barrels of condensate per day.
In early 2015 the Iranians brought on-stream the last gas platform that was included in the field’s 12th phase, which further hiked production.
According to Hassan Montazer Torbati, the planning director for the National Iranian Gas Company, from mid-March 2014 to early January 2015, his company produced 158 billion cubic meters of gas, or 16 billion cubic meters more than during the same period in 2013.
The Iranian also announced a 10% increase in gas exports. According to Montazer Torbati, eight billion cubic meters of upstream products were shipped abroad during that period. In addition, from March 2014 to February 2015, Iran’s gas exports exceeded imports by 2.5 billion cubic meters.
Tehran aims to further increase daily gas production (which had exceeded 600 million cubic meters at the end of 2014) by developing South Pars. There are also plans to build the critical infrastructure that is needed to boost the sales of upstream products to customers in the Middle East and EU.
Tehran aims to attract foreign companies in order to pursue its gas-shipment projects. Negotiations are already underway with Japan’s Mitsubishi Group, as well as South Korea’s Samsung and LG. In addition to Asian players, Italian firms have expressed interest in joining Iran’s pipeline projects, without waiting for a full rollback of the sanctions that keep foreign businesses from operating effectively in the Iranian market.
The buyers of Iranian natural gas may include Turkey, Armenia, and Azerbaijan. About 10 billion cubic meters of gas per year are exported to Turkish consumers, while the others receive about one billion cubic meters of Iranian fuel.
But these are negligible quantities for a state that is blessed with some of the greatest reserves in the world.
With this in mind, in recent years Iran’s leaders have been actively seeking to build bridges of natural gas that will link the country with its regional neighbors, with a focus on Pakistan and the Persian Gulf nations.
Thanks to financial input from the Chinese, who in April officially announced their intention to build a section of the Iran-Pakistan pipeline, that project can be complete within two years.
The Iranian portion of the pipeline (about 900 km.) has already been built, so the ball is in Islamabad’s court, and they managed to squeeze the maximum out of many months of backroom negotiations with Beijing, reaching an agreement with the China Petroleum Pipeline Bureau, a subsidiary of CNPC, to construct a 700-km. trunk line.
Then the gas pipeline will be connected to Pakistan’s existing gas-transmission network. The construction of the remaining section of the pipeline (about 80 km.) to the Iranian border will be Islamabad’s responsibility. Once the project is up and running, the Pakistani market will receive about 28 million cubic meters of Iranian gas per day.
Shipments of Iranian gas to Iraq, totaling four million cubic meters per day, should begin this summer, and later increase to 35 million cubic meters per day. The Iran-Iraq gas pipeline could be extended to Kuwait, and active negotiations to that end are underway.
In April, Ali-Reza Kameli, the head of the National Iranian Gas Export Company, stated that Oman plans to import about 28 billion cubic meters of gas per day for 25 years. It is expected that the construction of the Iran-Oman trunk line will be completed by 2017. However, the project deadlines may be pushed back due to disagreements between the parties over the price of gas.
The future also looks murky for the export of raw materials from Iran’s Salman field to the UAE, since the parties’ negotiations stalled over disputes about the price and volume of gas supplies, and the contract is now in the hands of international arbiters.
When speaking of potential exports of Iranian gas to Europe, it is worth emphasizing that according to Iran’s president, Hassan Rouhani, if Western sanctions are fully lifted, his country is ready to supply 20 billion cubic meters of gas to Europe by 2020.
Europe is also the biggest market for Russian gas and there are rumors that Iran could become Russia’s business rival. However, the Russians have no cause to worry, because Iran has declared through its foreign minister, Mohammad Javad Zarif, that it is willing to work with Gazprom to build Turkish Stream.
Tehran and Moscow will not compete fiercely in Europe, since the parties have long been working on a detailed, effective mechanism that will enable them to share gas markets equitably, including at the GECF forum.
Besides, Iran has certainly not forgotten the many years of unique expertise and technological support that Russian gas experts have provided that country and will not put a spoke in Gazprom’s wheel, nor does that company have any intention of squeezing Iran out of the Asian market.
Eldar Kasayev is an expert on international law and investment in the energy sector of the Middle East and North Africa. His latest book is Qatar in the 21st Century: Today’s Tendency and Prognosis of Economic Development (in Russian).